Public interest not served by ill-judged reforms

By David Nolan

Tuesday, December 10, 2013

NOW that former solicitor Thomas Byrne has begun a 12-year sentence for fraud-related offences committed while operating his own multi-disciplinary practice, close attention needs to be paid to the introduction of new or alternative business structures for lawyers and to the measures which may be introduced to regulate them.

Recent commentary on the exit from the troika bailout has included references to “vested interests” delaying the reform of legal services in the Legal Services Regulation Bill, which was first published in Oct 2011.

Such analysis is entirely wrong. The Bar Council supports the independent regulation of the legal professions.

In addition, the council has always supported the legal costs reforms in the bill. The establishment of a legal costs adjudicator and legal costs guidelines will ensure the more efficient and transparent determination of legal costs to the benefit of consumers. These measures in the bill could have been enacted in separate legislation and made operational by now, thus providing real reform in this area.

International legal bodies expressed concerns when the bill was published regarding government control of the new regulatory authority, which was unique in any civilised and democratic country. Some amendments to ensure greater independence of establishment and functions of the regulator have been made which is to be welcomed. However, some concerns remain.

The justice minister has not addressed legitimate concerns about the cost and structure of the new regulator, which as presently proposed will be both expensive and inefficient. The Bar Council’s independently commissioned regulatory impact assessment, published in Mar 2012, estimated increased costs of regulation under the bill at €5m-€8m a year.

This cost would wipe out any benefits to the public from the legal costs provisions in the bill, as such heavily increased regulation costs will inevitably have to be passed on to the public. Some lawyers will be driven out of business by such costs. Hopefully, the Department of Justice will soon finally produce its own detailed impact assessment for the bill.

Nobody wants another expensive quango and the new regulator must be efficient and fit for purpose in the public interest. To date, no convincing case has been made that the regulatory model in the bill meets that objective.

The third pillar of the bill to allow for new business models beyond the traditional professions to provide legal services is particularly troubling.

This is not because of self-interest on the part of the legal professions, but a concern that no evidence has been provided that these new structures are beneficial to the public interest in access to justice.

The proposals in the bill to establish new forms of legal partnerships involving barristers, solicitors, and multi-disciplinary practices involving lawyers and non-lawyers in so-called one-stop shops have been heralded as being good for business and providing job opportunities for lawyers. However, the opposite may well be the case.

Supporters of “opening up” the “traditional” legal professions argue that we should follow what has been done elsewhere to provide new opportunities. But these are uneasy echoes of those in the banking fraternity who said less than 10 years ago that “traditional” models of banking were outdated and required change. That superficial analysis has been brutally exposed by events since 2008.

Unlike the detailed assessment of such issues which occurred in the UK and the US, no research has been undertaken here which specifically recommended the types of business structures now proposed in the bill. They were not recommended by the troika, which only required measures to reduce legal costs, nor by the working group on legal costs.

The Competition Authority in 2006 said multi-disciplinary practices and legal disciplinary partnerships required further research due to issues about access to justice and regulatory concerns. They were not recommended in the North when similar research was published there in 2007.

THE UK recently allowed multi-disciplinary practices to operate. However, the American Bar Association placed a specific prohibition on such practices in 2000 due to concerns that they undermine the independence of lawyers, because conflicts of interest arise between duties to fellow shareholders to make profits and duties to the court and the client. Recent consideration of the issue by the ABA has reaffirmed opposition to these structures.

Byrne is a devastating example of the dangers of conflicts of interest arising when lawyers’ duties to their clients and to the court are intertwined with the provision of other services.

Only a handful of US states have allowed MDPs to operate in legal services due to those concerns. The situation in Europe is similar. In Australia, MDPs have recently been allowed in one state but barristers are not allowed to participate in them.

The new and possibly costly regulation of the existing legal professions can be contrasted with the non-existent regulation in the bill itself of these new business models. The bill contains nothing to regulate vital ethical and regulatory issues concerning their make-up, shareholding ratios, operation and how the interests of their clients are protected in the event of malpractice.

For instance, who does a consumer go to complain of wrongdoing if they have been a client of an MDP involving a lawyer, accountant and tax consultant? How is lawyer-client privilege maintained in such entities? Importantly, will the cost of regulating these new models result in further increased costs of regulation across the entire legal profession and, therefore, higher costs to the public?

It is a matter of real concern that a bill which promotes better regulation and cost measures for lawyers could end up increasing regulatory costs for all lawyers and imposing no proper regulation over part of the new legal businesses it seeks to promote.

The independent Bar is already a very competitive market. Big firms and sole-trader solicitors alike can access 2,300 competing specialist barristers on a daily basis. Solicitors and their clients have a huge choice available and can shop around based on price, experience, suitability, etc. Barristers provide fee estimates to any prospective clients.

The council supports aspects of the bill about legal costs and independent regulation, as they will assist the provision of efficient and reputable legal services to all citizens. However, the introduction of new business models in the bill risks promoting costly, unethical and unregulated legal practices which will damage access to justice and the reputation of the legal system to the detriment of the entire economy. Nobody wants another case like Byrne’s where his legal practice was intermeshed with unethical and illegal business practices.

The Bar Council believes that proposed new business structures should be properly and independently assessed by the new regulator, which can report to the Oireachtas on the best way that the public interest in accessible and competitive legal services can be delivered in the 21st century.